Albert Mugo, Managing Director and CEO, Kenya Electricity Generating Company (KenGen): Interview

Interview: Albert Mugo

What role do you see for the private sector in terms of electricity generation in Kenya?

ALBERT MUGO: Power plants are, by nature, incredibly capital-intensive projects, and therefore it is essential that the country explore all options when looking to boost generating capacity. The government has plans to bring 5000 MW of capacity on-line by 2017, and while KenGen is currently the country’s leading supplier, it is in no position to bring the entire 5000 MW onto the grid. In fact, KenGen will be contributing only 844 MW, with the rest to be contributed by independent power producers from the private sector. As such, the private sector will be playing a much greater role in the generation sphere in the future.

How will the energy mix change in years ahead?

MUGO: There was a time when Kenya sourced more than 80% of its electricity from hydropower, but that is no longer the case. Currently, installed capacity for hydropower is 820 MW, whereas total installed generation capacity is 2175 MW. Geothermal has started to play a more important role in the country, comprising 48% of total energy production in the first four months of 2015. This is due to the comparative advantage of geothermal, whose plants can be run as base-load plants 24 hours per day, whereas hydropower remains dependent on rainfall and is an intermittent source by nature. Moving forward, hydropower’s contribution will continue to decline, and we expect it to account for less than 30% of the country’s generation capacity within 10 years. We see a concurrent rise in the role of geothermal. In fact, of the 844 MW KenGen plans to bring on-line by 2017, 700 MW will come from geothermal, compared to 24 MW from hydropower and 120 MW from wind.

More broadly speaking, while we see renewables playing an extremely important role moving forward, we will not do away with traditional thermal plants, because a healthy power sector requires a balance between the two. It is essential to diversify our power sources, as it is simply not wise to be over-dependent on any one energy type. The country learned this lesson from its past reliance on hydropower.

To what extent will transmission and distribution upgrades be necessary to absorb new capacity?

MUGO: Current demand for power is around 1600 MW, while installed capacity is around 2100 MW. Bringing an additional 5000 MW online will require substantial upgrades to the transmission and distribution networks. Most of the blackouts currently experienced by customers are not due to a lack of capacity, but to weaknesses in the transmission and distribution networks. The government is aware of the need for improvements and is investing in new transmission lines, substations and the distribution network. We also work closely with the private sector to ensure upgrades are in line with investors’ expansion plans, such that new generation and transmission infrastructure can be matched with customer uptake.

How do power costs affect investment?

MUGO: The government is aware that Kenya’s competitiveness as an investment destination for energy-intensive industries is largely dependent on the cost of power. One of its primary policy objectives is cost reduction, and this was one of the driving forces behind the plan to add capacity by 2017.

Significant progress has already been made. Bringing the 280-MW Olkaria geothermal power plant on-line at end-2014 helped displace generation that had previously been sourced from oil-fired thermal plants, which are vulnerable to oil prices. Since the project came on-line, the price of power has been reduced by 20-30%, and we expect that with the additional projects set to come on-line in the coming years, the price of electricity will fall even further, supporting the country’s attractiveness for investments.